Bond is a financial instrument that sells debt through open market. They’re issued by companies to finance their various operations.
The Government and government authorised infrastructure projects borrow money for infrastructure projects and development. Such bonds issued when the Government is short of funds are called Infrastructure bonds.
Funding of these projects at lower interest rates allows for bonds to provide you with tax benefits. A list of infrastructure bonds are announced by the government from time to time. Such investments are eligible for tax deduction under section 80CCF of the income tax.
Although, one must take note of the fact that the interest received in these bonds is not tax free.
Benefits of Infrastructure Bonds:
- When considering fixed income category, tax saving infra bonds is a fine investment option. This is definitely an investment avenue to look out for.
- Investors can invest an additional Rs 20,000 in infrastructure bonds under Section 80CCF. This is over and above the the Rs 1,00,000 tax deduction available under Section 80C. These are long-term secure bonds that will take roughly 10-15 years to mature.
- By investing in such bonds you become a part of India’s Infrastructural growth.
- Being a part of this growth enables you to receive decent returns with a 3 year lock-in period.
Who can apply?
If you’re an Indian resident (not minor) or a HUF (Hindu Undivided Family), you are eligible to invest in infra bonds.
NRIs cannot invest in such bonds.
These bonds have a minimum investment amount of INR 5000 and thereafter in multiples of INR 5000.
How can you apply for infra bonds with Pentad
- You can apply online using a demat account. A demat account and PAN card are essential to trade in infra bonds.
- You can also apply for these bonds in physical format. For this, you’ll require a self-attested PAN card. You’ll also have to submit identity and address proof as part of the KYC process (Know Your Customer).
- These bonds can be traded with the stock exchange like stocks after the expiry of the 5 year lock-in period.
- The interest earned on these bonds is taxable.
- Investing in multiple bond issues to diversify your investments will prove to be a hassle later.